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Do Bilateral Investment Treaties Attract FDI? Only a Bit…and They could Bite
Abstract
Toted as an important commitment device that attracts foreign investors, the number of bilateral investment treaties (BITs) ratified by developing countries has grown dramatically. This paper tests empirically whether BITs have actually had an important role in increasing the FDI flows to signatory countries. While half of OECD FDI into developing countries by 2000 was covered by a BIT, this increase is accounted for by additional country pairs entering into agreements rather than signatory hosts gaining significant additional FDI. The results also indicate that such treaties act more as complements than as substitutes for good institutional quality and local property rights, the rational often cited by developing countries for ratifying BITs. The relevance of these findings is heightened not only by the proliferation of such treaties, but by recent high profile legal cases that demonstrate that the rights given to foreign investors not only exceed those enjoyed by domestic investors, but expose policy makers to potentially large scale liabilities and curtail the feasibility of different reform options. Formalizing relationships and protecting against dynamic inconsistency problems are still important, but the results should caution policy makers to look closely at the terms of agreements.
... Second, the paper offers new insights regarding the FDI effects of IIAs. The existing literature has not reached a consensus about this association (e.g., Hallward-Driemeier, 2009;Busse et al., 2010;Berger et al., 2011Berger et al., , 2012Dixon & Haslam, 2015;Falvey & Foster-McGregor, 2017a;Frenkel & Walter, 2018;Li et al., 2021). Leaving out the recent IIA regime shift has led to inconsistencies across studies regarding the true FDI effects of IIAs. ...
... The stand-alone FDI gravity model allows us to conjecture that rising IIA protectionism affects investment frictions. Building on the substantial literature on the FDI creation effects of IIAs (e.g., Hallward-Driemeier, 2009;Berger et al., 2011;Busse et al., 2010;Falvey & Foster-McGregor, 2017a), we hypothesize that amending IIA provisions or terminating existing IIAs will increase investment frictions. To illustrate that impact, let IIA ij be one if an IIA is in force between source country i and destination country j and zero otherwise. ...
... Here, the parameter of interest ( k ) captures the partial derivatives of FDI with respect to IIAs with more ( k = m ) or less ( k = l ) stringent provisions. Because our preferred empirical model uses annual FDI data, we could underestimate the treatment effect by lagging the treatment variable by one year as the IIA effective dates can vary within the calendar year, potentially masking short-run treatment effects (Hallward-Driemeier, 2009). To account for these within-year differences in the treatment month, we weigh IIA by the number of months the IIA policy change was effective. ...
This paper investigates the impact of the changing international investment regime on foreign direct investment (FDI). Since the late 2000s, hundreds of international investment agreements (IIAs) have been renegotiated or terminated. We study the impact of these shifts in the global investment regime using a novel FDI dataset based on transaction-level investment data and detailed information on IIA provisions. Relying on a stand-alone partial equilibrium modeling framework, we hypothesize that rising protectionism in IIAs increased investment frictions and harmed FDI. We then use a parsimonious three-way gravity framework to test the hypothesis. The empirical evidence shows that reformed and newly enforced IIAs have no impact on FDI flows. Decreasing investment openness in recently implemented IIAs is the driving mechanism behind these findings. We also show that the effects of IIA termination differ by FDI type, being more pronounced for brownfield than greenfield FDI and larger for horizontal than vertical FDI. Lastly, we show significant treatment heterogeneity across industries, with capital-intensive sectors benefiting more from IIAs than labor-intensive ones. Our findings highlight the need to reconsider the benefits and costs of IIAs under an increasingly protective international investment regime.
... However, some studies argue host country institutions function as complementary rather than substitute (Hallward-Driemeier, 2003;Li and Zhao, 2021;Neumayer and Spess, 2005;) -i.e., the extent to which BITs can substitute poor institutional environment in the host to attract FDI is limited if the host country institutional environment does not improve. Indeed, the empirical results on the relationship between IIA and FDI are not always consistent. ...
This article revisits the role of Bilateral Investment Treaties (BITs) in Foreign Direct Investment (FDI). It investigates, in particular, the institutional quality of the host countries, the number of cases brought for resolution, plus a more nuanced formulation of numbers of BITs, focusing on developing host countries.The analysis looks at more recent developments in BITs and incorporates economic freedom as a proxy of institutional quality of the host countries and considers the number of Investor-State Dispute Settlement (ISDS) in the BITs. We assume a non-linear relationship between BIT and FDI. Models are run using feasible generalized least squares (FGLS). Our new findings reveal that there is an optimum level of BITs in attracting FDI (higher and lower numbers do worse), constituting a re-appraisal of past analyses. Previous ISDS cases show a significant negative relationship with FDI. Economic Freedom has a strong positive and significant relationship with FDI/GDP, as previously found.
... Some studies have found little evidence that signing BITs stimulates additional investment. 105 The FDI referred to here was first protected by colonialism and is now protected by neo-liberal imposition, for which ISDS is a prime example.106 Neo-liberalism includes a set of economic policies that embed the thinking that markets will arrange economic affairs efficiently. ...
The current Africanization approaches mask some nuances present in current reform efforts of international investment law (IIL) and investor-State dispute settlement (ISDS) in Africa. I adopt the categorization of international law scholarship in Africa developed elsewhere into two trends: contributionist (weak) and critical (strong) scholarship. For reforms in African IIL and ISDS, I relabel this trends benign Africanization representing the contributionist (weak) strand and radical Africanization representing the critical (strong) strand. I argue that African states must focus on wider economic justice engendered in the radical Africanization approach. I propose three lines of action that will implement radical Africanization: first African States, in their reforms, must focus on both extra and intra-African investment; second, the reforms must engage deeply seated substantive issues in addition to the current procedural reforms; and finally, African States must have a real reckoning and engagement with the imperial history of IIL generally and ISDS specifically.
... The greater amount of investment in country B means a greater loss for country A, in the case of political instability or other political risks that may occur in country B. As a special mechanism to promote investment, BITs can overcome the poor institutional environment of the host country. In particular, the dispute-settlement procedures contained in BITs, which codifies the forum and treatment of any future disputes, may alleviate these concerns (Hallward-Driemeier, 2009). Therefore, institutional differences will play a moderating effect. ...
Compared to the vast number of previous studies on the impact of bilateral investment treaties (BITs) on Foreign Direct Investment (FDI), this paper empirically analyses how previous FDI affects BIT signing by using annual data covering 258 countries for the period 2002–2012. We find that the likelihood of signing BITs between two countries is higher when the country-pair has a larger sum of FDI stock and a larger FDI difference, and this effect is more pronounced in middle- and low-income countries than high-income countries. Further research finds that the institutional gap is an important factor that can enhance the positive impact of FDI stock/ FDI difference on the signing of BITs. The contribution of this research lies in providing a benchmark for incorporating more economic variables into the understanding of the determinants of BIT signing. In particular, the role of FDI should be given more attention.
... Empirical evidence on whether BITs help signatories attract FDI, however, is mixed. Whereas some scholars find that BITs do result in greater FDI inflows (Salacuse & Sullivan, 2005;Neumayer & Spess, 2005;Büthe & Milner, 2009), others find no effect of BITs on FDI (Hallward-Driemeier, 2003;Gallagher & Birch, 2006). More recent research questions whether our current measures of FDI are even suitable in the first place (Kerner, 2018) and the role of publication bias (Reiter & Bellak, 2020). ...
... A cross-sectional analysis of data from 1995 on 133 countries and 200 BITs by UNCTAD (1998) reveals a weak positive correlation between the presence of a treaty and an increase in FDI. Using dyadic data on FDI flows from 20 OECD countries to 31 developing countries from 1980 to 2000, Hallward-Driemeier (2003) finds little evidence of a positive relationship between BITs and increases in FDI flows. Using a cross-sectional dataset, Salacuse and Sullivan (2005) find that while BITs signed with the US do increase FDI inflows, BITs signed with other OECD countries have no effect. ...
In contrast to the substantial scholarship on whether bilateral investment treaties (BITs) increase foreign direct investment (FDI), there is less work on what drives governments to sign these treaties in the first place. I develop a theory of treaty signing that emphasizes the domestic factors that motivate a government to sign BITs. Using a panel dataset of developing countries from 1960 to 2010, I find that governments scarce in natural resources are more likely to sign BITs compared to their richer counterparts. In addition, governments with middle levels of property rights are more likely to sign BITs compared to those with low or high levels. Finally, the most likely BIT signers are resource-scarce countries with middle levels of property rights. That strategic dynamics exist in BIT signing has implications for assessing the effects of these treaties in other issue areas such as trade, human rights, and the environment.
This chapter addresses the issue of international investment regulation with a bearing on Africa. It reviews the bilateral investment treaties (BITs) which have been signed by African countries, and characterizes intra-African BITs. It also discusses regional investment regulation in the continent and its elements for harmonizing the cluttered “spaghetti-bowl” of investment regimes. Based on the findings and the existing regional integration agenda on investment, the chapter discusses the viability of an African Continental Investment Area as an alternative to the existing investment regime, in favour of a more harmonized and developmental approach that builds on existing institutions and processes.
This study investigates the practical relationship between foreign direct investments (FDI), bilateral investment treaties (BITs), income, energy consumption and CO 2 emissions in sub-Saharan African (SSA) countries between 2000 and 2020. To address the challenges of heterogeneity, non-stationarity and cross-sectional dependence, we employed the dynamic common-correlated effects estimation method introduced by Chudik and Pesaran. This methodology provides reliable results for panel datasets of significant to moderate size. The results indicate a direct connection between FDI and CO 2 emissions, providing evidence for the pollution haven theory. Notably, BITs also have a favourable and substantial impact on environmental degradation in SSA countries. These findings emphasise the need for effective environmental regulatory frameworks and management techniques. Achieving sustainable growth and economic development in SSA countries requires prioritising the adoption and implementation of carbon reduction strategies. SSA countries can attain balanced growth between economic progress and environmental preservation by reducing the negative effects of FDI inflows and BITs on environmental sustainability. This study expands the current knowledge base by providing insights into the complex relationship between FDI inflows, BITs, income, energy consumption and CO 2 emissions in SSA countries. The findings offer valuable guidance to policymakers and stakeholders in formulating and executing effective environmental policies and regulations to promote sustainable development in the area.
The relationship between foreign direct investment (FDI) and military spending in the Middle East and North Africa (MENA) region is complex and multifaceted. High levels of military spending can deter foreign investors, as it creates an uncertain and potentially volatile investment climate. However, countries that invest in their military infrastructure and capabilities may be seen as more stable and secure, which can attract foreign investors. Taking into account several factors that can influence this relationship, including political stability, security concerns, and economic factors, this work analyzes whether military spending attracts foreign capital into the region. Using a dynamic panel data methodology along with other relevant macroeconomic variables, results show that the military expenditure has a positive and significant impact on FDI inflows into the MENA region. The paper highlights the fact that policymakers in the region must carefully balance military spending with investments in other areas of the economy in order to create a stable and favorable investment climate that attracts foreign investors and contributes to long‐term economic growth and development achieving both security and welfare.
There is a lively debate about whether international investment agreements (IIAs)—the central instruments governing foreign direct investment—are compatible with sustainable development objectives. One critical argument is that investment treaty provisions limit governments’ policy space to achieve transitions toward sustainability and may lead to costly legal disputes. Against this background, governments, international organizations, and other stakeholders have begun to consider options for modernizing international investment law by including provisions related to sustainable development in the treaties. In this article, we examine to what extent and why states include sustainability references in IIAs. Our automated text analysis of 2,083 bilateral investment treaties and 374 other treaties with investment provisions shows that the number of sustainability references has risen sharply recently. Drawing on the literature on issue linkage in economic agreements, we test different explanations for the changes in the treaty language. We find that the level of democracy among treaty parties and the experience of being sued in the past are strong drivers of the described trend.
Studies of international investment treaties have debated whether these agreements independently increase foreign investment flows. This article contributes to the debate by contextualizing the impact of bilateral investment treaties on post-coup domestic political environments. We argue that these treaties enable capital-receiving countries to live up to their commitments of investment protection and promote foreign investment when signatories’ capacity for investor protection has been compromised by the political turmoil of coup events. Using a sample that covers 81 countries between 1970 and 2017, we find that bilateral investment treaties are positively associated with foreign investment in post-coup countries, and that this association is strongest in the immediate years following the coup and attenuates gradually over time. This finding potentially lends support to theorizations of bilateral investment treaties as substitutes, rather than complements, to domestic institutions in fostering investment activities.
This paper analyses the impact of bilateral investment treaties (BITs) on sovereign default risk using monthly data for 29 emerging markets from 1996 to 2016. Under a BIT, foreign investors can use an international arbitration scheme to enforce compensation claims against the host country's government. We focus on the so far unexplored legal risk associated with BITs since a higher likelihood of government expropriations implicitly increases public debt. We do not find a significant unconditional effect of BITs on sovereign default risk (measured by the month‐over‐month percentage change in a country's Emerging Market Bond Index). Considering the heterogeneity of BITs and political risk, we find robust and strong negative effects of BITs on sovereign bond returns. In countries with high political risk of expropriation (measured by low executive constraints), we find that the implementation of BITs with strong investor protection is associated with a significantly negative impact on sovereign bond returns (−0.45 percentage points), which compares to roughly 11.7% of bond returns' monthly standard deviation.
This study investigates the effects of international investment agreements (IIAs) on the internationalization decisions of emerging market multinationals (EMNEs). Drawing on the POLI advantage framework, we argue that bilateral investment treaties (BITs) add to the political and institutional capabilities of EMNEs, enhancing their OLI advantages in host countries. We identify two mechanisms through which BITs facilitate EMNEs' internationalization: by offsetting political risk and by mitigating the informational asymmetries and transaction costs associated with investing in unfamiliar destinations. We probe the plausibility of our claims with data from an original survey of firms in four emerging economies and a larger sample of bilateral FDI flows from UNCTAD's FDI/MNEs database. Our findings show a positive association between BITs and FDI from the South, especially in politically unstable and unfamiliar contexts. Apart from adding to the International Business literature on EMNEs, this study contributes to International Political Economy scholarship on FDI by highlighting the growing relevance of South-South IIAs.
Przedmiot badań: Przedmiotem badania jest zależność bezpośrednich inwestycji zagranicznych (BIZ) i sytuacji makroekonomicznej w gospodarkach w okresie transformacji oraz ocena znaczenia zawieranych przez te kraje umów o popieraniu i wzajemnej ochronie inwestycji (ang. Bilateral Investment Treaties – BIT) dla napływu bezpośrednich inwestycji zagranicznych. Badania są prowadzone w czterech krajach na Bałkanach Zachodnich: Bośni i Hercegowinie, Chorwacji, Macedonii Północnej i Serbii w latach 2001–2019. Cel badawczy: Celem artykułu jest ocena zależności bezpośrednich inwestycji zagranicznych (BIZ) i sytuacji makroekonomicznej w gospodarkach w okresie transformacji oraz ocena znaczenia zawieranych przez te kraje umów o popieraniu i wzajemnej ochronie inwestycji (ang. Bilateral Investment Treaties – BIT) dla napływu bezpośrednich inwestycji zagranicznych. Badania wypełniają lukę w wiedzy na temat zarówno znaczenia BIT dla BIZ, jak i znaczenia BIZ dla sytuacji makroekonomicznej.1 Metoda badawcza: Dla oceny znaczenia bezpośrednich inwestycji zagranicznych dla gospodarki oszacowano korelację między BIZ a wskaźnikami opisującymi sytuację makroekonomiczną, w tym wzrost PKB, PKB per capita oraz stabilność makroekonomiczną. W dalszej części skoncentrowano się na BIT jako potencjalnych narzędziach oddziałujących na skłonność inwestorów zagranicznych do podjęcia decyzji o zainwestowaniu w kraju rozwijającym się, zapewniającym ochronę inwestycji zagranicznych na podstawie BIT. W związku z tym sprawdzono, czy po zawarciu umowy BIT nastąpił wzmożony napływ BIZ. Dane pozyskano ze źródeł Banku Światowego, baz danych UNCTAD i EBOR, a także baz instytucji lokalnych w każdym badanym kraju. Wyniki: Wnioski z badań sugerują, że z jednej strony napływ BIZ nie był istotnym czynnikiem rozwoju gospodarczego w badanym regionie, a z drugiej strony – BIT nie stanowiły istotnego narzędzia oddziałującego na decyzje inwestycyjne zagranicznych inwestorów.
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Over the past 30 years, China has undergone unprecedented economic growth rates considering the country’s scale and diligence.
The popularity of Foreign Direct Investment (FDI) stimulates research on its determinants. This paper highlights the importance of political determinants in explaining inward FDI variation across countries. Adopting the argument that no single theory exists for FDI, it identifies the political factors based on the results of related empirical studies. The literature review?s primary concern is to provide underpinnings for further research on inward FDI distribution in the contemporary international political scene. It sets up the theoretical links between political regimes, political determinants, and FDI. The paper focuses on the importance of specific political variables established in all political systems to influence foreign investors' decision-making process. The distinguished determinants are property rights protection, the signing of Bilateral Investment Treaties (BITs), human rights, and quality of governance.
In this study, we examine the impact of Japan's International Investment Agreements (IIAs) on the locational choice of Japanese firms' foreign direct investment (FDI) by considering the quality of IIAs. We estimate the conditional logit model covering 12,435 FDI cases by 3838 Japanese companies in 92 host countries, 16 manufacturing sectors and 12 non‐manufacturing sectors from 2000 to 2019. We found that the presence of IIAs, particularly comprehensive and high‐level ones, has a positive impact on Japan's FDI. On the contrary, the past incidence of investor–state disputes has a negative impact. These effects are found to be particularly strong for FDI by small‐ and medium‐sized enterprises. High regulatory quality is found to attract FDI, whereas the positive impact of IIAs in attracting FDI is strong in a country with a low regulatory quality.
India initiated the unilateral mass termination of bilateral investment treaties (BIT termination) in 2016. We consider it a natural experiment to clarify the issue of whether BITs attract foreign direct investment (FDI) to a developing country. We evaluate the effect of BIT termination on the FDI inflows using the double and triple difference approaches (DD and DDD) and the synthetic control (SCM) methods. Our study finds that BIT termination led to a significant decrease in FDI inflows from the country with which India terminated the agreement. Thus, the study confirms that BIT is an essential mechanism for attracting FDI.
It is commonly accepted that developing countries pursue the creation of bilateral investment treaties (BITs) to attract foreign direct investment (FDI). However, it is relatively unknown what role developed countries play in the creation of BITs. When negotiating FDI deals, multinational corporations (MNCs) anticipate potential investment disputes between themselves and the host government. MNCs seek to reduce future investment risks, and asking their own government to secure BITs with the host country is an attractive option for doing so. To test my argument about capital-exporting actors influencing BITs, I analyze FDI project announcement data, which captures the timing of when MNCs finalize their plans to engage in FDI. The findings show that MNCs’ already-planned FDI is strongly associated with the probability of subsequent BIT signing between the home and host country. Moreover, by matching firm-level financial information with FDI project announcements, I show that home countries are more likely to establish BITs with host countries when large firms are the source of the planned FDI. These findings suggest that BIT creation is not driven solely by host countries’ economic needs, but also by home countries’ desire to protect their politically privileged firms.
We study the association between intellectual property (IP) reform in developing countries and their foreign direct investment (FDI) inflows over 2004–2015, after their transition period under the World Trade Organization. Using conditional difference‐in‐differences estimation, we find unambiguous evidence that stronger IP rights spur FDI inflows. Further, this response is heterogenous across countries and time. Whereas the effect of a unit increase in IP protection on the percentage increase in FDI FDI inflows remains about 0.50 for countries with small magnitudes of knowledge assets (roughly 15 ‘international patents’), it declines to about 0.25 for countries with larger knowledge capital (say, 5000 ‘international patents’). The results are robust to numerous robustness checks.
Investment facilitation, which tackles ground-level obstacles to FDI and has no substantial challenges to regulatory space, is emerging as a new trend of global governance. Meanwhile, the content and method to implement investment facilitation are still evolving. Both as top FDI destinations and largest emerging countries in South America and Asia respectively, Brazil and China have adopted somewhat different approaches towards investment facilitation. Due to traditional resistance to BITs network, Brazilian developed a new model of investment treaty, i.e., Cooperation and Investment Facilitation Agreement (CIFA). CFIAs primarily focus on investment facilitation through institutional cooperation, but the scope and degree of investment protection are quite insufficient. China’s approaches towards investment regime are inclusive, i.e., it is a practitioner of investment facilitation as well as a proponent of IIAs with a balanced ISDS mechanism. On the one hand, while investment protection and liberalization system are essential part of good business environment, IIAs don’t necessarily lead to friendly regulatory environment to attract FDI inflows. In this regard, the policy of investment facilitation is complementary to existing international investment regime. It is suggest that China draws some experiences from Brazil in terms of institutional governance and establishing a similar and effective dispute prevention system. On the other hand, access to justice is still important to foreign investors, the policy of investment facilitation can’t act as a total substitute of traditional BITs worldwide. Considering the Brazilian investors’ increasing outbound investment and the growing needs of investment protection, it is suggested that China’s open and liberal policies are worth learning for Brazil.
This collection of essays takes stock of the key challenges that have arisen since the entry into force of the General Agreement on Trade in Services in the mid-1990s and situates them in the context of the WTO's Doha Development Agenda and the proliferation of preferential agreements addressing services today. The multidisciplinary approach provides an opportunity for many of the world's leading experts and a number of new analytical voices to exchange ideas on the future of services trade and regulation. Cosmopolitan approaches to the treatment of labour mobility, the shape of services trade disciplines in the digital age and pro-competitive regulation in air transport are explored with a view to helping readers gain a better understanding of the forces shaping the changes. An essential read for all those concerned with the evolution of the rules-based trading system and its impact on the service economy.
The diffusion of markets and democracy around the world was a defining feature of the late twentieth century. Many social scientists view this economic and political liberalization as the product of independent choices by national governments. This book argues that policy and political changes were influenced heavily by prior actions of external actors: not just other governments, but international organizations and communities of experts. Drawing together insights from economics, sociology, political science and international relations, the contributors focus on four mechanisms by which markets and democracy have diffused through interdependent decision-making: coercion and the impact of powerful countries and international actors; economic competition for markets and investment; learning from experiences of other countries; and emulation among countries. These mechanisms are tested empirically using sophisticated quantitative techniques in areas as diverse as capital account and investment policy, human rights and democratization, and government downsizing, privatization and taxation.
The negotiation of a patchy but burgeoning network of international investment agreements and the increasing use to which they are put is generating a growing body of jurisprudence which, while still evolving, requires closer analytical scrutiny. Drawing on many of the most distinguished voices in investment law and policy, and offering novel, multidisciplinary perspectives on the rapidly evolving landscape shaping international investment activity and treaty-making, this book explores the most important economic, legal and policy challenges in contemporary international investment law and policy. It also examines the systemic implications flowing from frenetic recent judicial activism in investment matters and advances several innovative propositions for how best to promote greater overall coherence in rule-design, treaty use and policy making and thus offer a better balance between the rights and obligations of international investors and host states.
Investment protection is a contentious issue in trade and investment negotiations due in large part to controversy surrounding investor-state dispute settlement (ISDS). Governments have taken a range of positions on ISDS—from opposing moderate reforms to the system to the outright rejection of it. Extant research suggests that countries which experience costly investor claims are more likely to be circumspect about it. Case studies of Australia and Peru demonstrate that other factors must be considered. Both countries experienced investor claims but governments continued to act as ‘pragmatic proponents’ of the system. We show how interest groups and experts shape government preferences by reinforcing the legitimacy of ISDS in the face of contestation. In both cases, domestic actors framed ISDS as low risk; promoting good governance through regulatory chill; and protecting public interests through the promotion of business, which outweighed the costs of participation. Despite the lack of empirical evidence supporting these claims, they were persuasive because interest groups played on embedded ideas about the merits of market-led development and the economic utility of the mechanism. However, we predict that the influence of pro-ISDS actors will vary over time depending on their access to bureaucratic and political decision-making centres.
Large-scale land acquisitions (LSLAs) are large tracts of land purchased or leased in low- and middle-income countries by multinational firms. This study examines whether these firms respond to the presence of bilateral investment treaties (BITs), whether BITs reinforce or undermine institutions in this process, and whether these firms respond to recipient-country environmental regulations. It analyzes data on LSLAs, BITs, and environmental policies from 2002 to 2012 in a gravity framework controlling for country-pair and time fixed effects. It finds a BIT is associated with a 96 to 149 percent increase in land deals and a 1 point increase in a recipient country's environmental protection index is associated with around a 36 percent decrease in the total amount of land investors lease or purchase in a country. Interactions between BITs and institutional measures in recipient countries yield large relationships with the number of LSLA deals between countries, although these are statistically insignificant.
This study identifies the impact of Bilateral Investment Treaties (BITs) on foreign direct investments (FDI) by taking advantage of the random timing of 44 unilateral BIT terminations in India between 2013 and 2019. Using quarterly bilateral data of 138 foreign investors’ home countries (FIHCs), our difference-in-differences (DD) estimates uncover a significant reduction in FDI inflows to India in response to BIT terminations by more than 30 percent compared to countries without terminations. We identify the sudden break with investor protection for new investments as the major transmission channel. Further investigations suggest that investors do not necessarily abandon India in response to BIT terminations but apparently reroute FDI via FIHCs with BITs. Evidence from firm-level data reveals that investors revoke or reroute mainly deals (e.g. mergers and acquisitions) rather than own new projects. Moreover, similarity of some legal institutions with India offsets the negative effect of BIT terminations.
Overview and analysis of principles and voluntary guidelines for responsible investments in developing countries' agriculture and suggestions as to how the guidelines can become more effective. Includes case studies of Addax Bioenergy in biofuel in Sierra Leone, the Swedish pension fund AP2 investments in large scale agriculture in Brazil and the Diocese of Västerås, Sweden, investments in forest plantations in Moçambique. Study prepared for the Swedish FAO Committe 2014.
The Iraqi Government has generally adopted an open door policy toward investment, especially foreign investment, since 2003. However, the investment sector encounters several legal challenges regarding Build-Operate-Transfer (BOT) contracts. The crucial problem lies in the lack of law to regulate investment contracts in public utilities and participation of the private sector in managing and financing them by way of BOT contracts. This study examines the current legal regime in Iraq including the legal framework of the BOT contracts in terms of conceptual and statutory principles, current legal challenges, existing rules and legal provisions and compared these elements with Egypt. The study was conducted through combined methods of doctrinal and socio-legal research. The data was derived from library-based sources including relevant legislations, court cases and literature. These sources were corroborated by interviews with experts and academics on public utilities development and international investment in Iraq. This study used thematic approach as well as critical, analytical, and comparative legal methods for the data analysis. The findings of this study show that the current laws in Iraq are insufficient to govern the BOT contracts and there are several legal challenges that have impeded the implementation of the BOT contracts in Iraq. Thus, this study recommends that the Iraqi Legislature introduces a specific BOT law to regulate the BOT contracts in the country including legal provisions regarding the rights and obligations of the parties to BOT contracts and disputes settlement mechanisms.
Keywords: Foreign Investment, Build-Operate-Transfer (BOT), BOT Legal
Framework, Iraq.
أنشئت محكمة الاستثمار العربية عام 1993؛ وفقًا للاتفاقية الموحدة لاستثمار رؤوس الأموال العربية في الدول العربية، إلا أنها بقيت معدومة الأحكام في مواجهة الدول المضيفة للاستثمار، فلم تصدر أيَّ حكم يلزم أيَّة دولة عربية بتعويض المستثمر العربي، فهي دائمًا ما تقرر عدم اختصاصها بنظر النزاع؛ على الرغم من ازدياد عدد القضايا المنظورة في السنوات الأخيرة، وعلى الرغم مما نطمح أن تقوم به محكمة الاستثمار العربية من توسيع اختصاصها، واعتبارها ملجأً للمستثمرين العرب في مواجهة الدول المضيفة؛ إلا أنها قررت عكس ذلك في الحكم محل البحث الصادر لمصلحة دولة ليبيا؛ حيث حكمت بعدم اختصاصها ولائيًا – شخصيًا وموضوعيًا وإجرائيًا – بنظر الدعوى الاستثمارية، وذلك من خلال تفسير نصوص الاتفاقية تفسيرًا خاطئًا، بالمخالفة لأحكامها؛ ما حدى بالباحث إلى نقد هذا الحكم، وتوضيح التطبيق السليم لقواعد الاختصاص وفق أحكام الاتفاقية؛ استنادًا إلى آخر التوجهات الحديثة في القانون الدولي للاستثمار، وذلك بما يخدم مصلحة المستثمرين والدول العربية المضيفة للاستثمار.
Bilateral Investment Treaties (BITs) commit governments to behave “politely” towards foreign investors’ property rights and grant the latter the right to sue governments when violations occur. Some studies show that the greater the exposure to investment arbitration, the more likely states are to terminate their BITs. Other studies show that progressive governments are more likely to terminate treaties than economically liberal ones. In this paper, I argue that both ideology and exposure to investment arbitration are necessary but not sufficient conditions for countries when exiting BITs. As the case of Argentina shows, not all progressive governments prefer to exit the investment regime. As Argentina’s Former General Attorney told me in an interview, “Argentina made the decision, in fact I made the decision, to stay within the system. And overall, we did pretty well.” This study aims at providing an explanation to this preference: more concretely, why has Argentina decided to uphold its BITs during 12 years of progressive rulers? I explore three hypotheses, A) time inconsistencies, B) reputational consequences on FDI inflows, and C) sectoral composition of FDI portfolio. I finally show that sectoral composition of FDI can help predict when international treaties may be rescinded. My model proposes that the size of sunk costs can lead governments to shift their preferences regarding treaty adherence. Because of industry-specific characteristics, the sunk costs in Argentina’s foreign investments are difficult to capture. Hence, Argentina has more to gain from future FDI than from treaty termination. The results of this study provide critical information on BITs’ immune system by producing new data and recording key insights by elite policy-makers. This is particularly valuable considering that the secrecy in the process of investment arbitration is often described as “having gone too far.”
Since 1960, about 2852 bilateral investment treaties (BITs) have been signed. Of them, 2298 BITs are in force at present. In the last 61 years, the WTO members failed to conclude a global treaty to regulate FDI in host countries, consequently, the BITs have played a significant role to regulate FDI. As a member of the WTO, Bangladesh has signed 31 BITs so far with various states to allow and increase the inflow of FDI into the country. Bangladeshi foreign investment laws and BITs mainly protect foreign investors. However, neither of them has any specific provision regarding the screening of foreign investments in Bangladesh. Two questions have been addressed in this paper: (a) Do the BITs of Bangladesh allow the host state for screening of foreign investments at the entry stage? (b) Should the screening of FDI be required during the pre-entry stage in Bangladesh? In this paper, a doctrinal research method has been used to critically analyze 15 BITs to explore whether there is any reference for screening of foreign investments in Bangladesh. We find that the existing Bangladesh BITs have provisions to promote and protect foreign investments but have no reference in relation to the screening of foreign investments. Therefore, the author has recommended that the Government of Bangladesh can consider specific provisions for screening of FDI in future BITs.
Since 1960, about 2852 bilateral investment treaties (BITs) have been signed. Of them, 2298 BITs are in force at present. In the last 61 years, the WTO members failed to conclude a global treaty to regulate FDI in host countries, consequently, the BITs have played a significant role to regulate FDI. As a member of the WTO, Bangladesh has signed 31 BITs so far with various states to allow and increase the inflow of FDI into the country. Bangladeshi foreign investment laws and BITs mainly protect foreign investors. However, neither of them has any specific provision regarding the screening of foreign investments in Bangladesh. Two questions have been addressed in this paper: (a) Do the BITs of Bangladesh allow the host state for screening of foreign investments at the entry stage? (b) Should the screening of FDI be required during the pre-entry stage in Bangladesh? In this paper, a doctrinal research method has been used to critically analyze 15 BITs to explore whether there is any reference for screening of foreign investments in Bangladesh. We find that the existing Bangladesh BITs have provisions to promote and protect foreign investments but have no reference in relation to the screening of foreign investments. Therefore, the author has recommended that the Government of Bangladesh can consider specific provisions for screening of FDI in future BITs.
Bilateral labor agreements (BLAs) are preferred policy models for regulating migration by many governments around the world. The Philippines has been a leader in both agreement conclusion and exporting labor. A recent Congressional evocation is pushing bureaucrats and academics alike to investigate this policy strategy for outcomes and effectiveness. The following analysis answers the question “Do BLAs affect the migration outflows of Overseas Filipino Workers (OFWs)?” using a plausibly exogenous variation to isolate a causal effect. I test for effects of BLAs using two instrumental variables (IVs), such as Bilateral Investment Treaties (BITs) and Formal Alliances, and an original dataset of land-based and sea-based Filipino BLAs and migrant stock in 213 unique areas from 1960 to 2018. I do not find any empirical evidence that these treaties drive migration. However, BLAs have statistically significant effects on gross domestic product (GDP) per capita and exports, suggesting other important channels through which these agreements affect economic outcomes. These null results are critically important for policymakers and diplomats because the resources spent on negotiation are wasted if the primary goal is to increase migration.
Why do states participate in bilateral investment treaties (BITs)? In this article, I examine the role of indirect investment on BIT formation. Indirect investment flows are an important aspect of the global investment regime that are underexamined by research focused on direct flows only. Indirect flows play an important role in affecting incentives for BIT participation because firms channel investment through intermediary destinations to take advantage of existing BITs. I argue that governments are more likely to participate in BITs when states expect to access groups of capital exporting states through second order links. When selecting BIT partners, states evaluate expected indirect foreign direct investment (FDI) flows by considering characteristics of a potential partner's second order FDI partners. States are thus more likely to participate in BITs when expectations for indirect flows are high. I use a variety of analyses to demonstrate evidence in favor of my hypotheses. I find evidence that indirect flows affect the likelihood of BIT formation and increase dyadic FDI flows. This research provides a novel explanation for BIT formation and contributes to research on indirect capital flows, treaty shopping and BIT formation.
After a run of adverse investor-state dispute settlements, India has recently denounced all its erstwhile investment treaties. New investment treaties need to be negotiated on the basis of a new Model Treaty that privilege state rights over investor rights. We study the impact of bilateral investment treaties on foreign direct investment (FDI) inflows into India before the denunciation with the intent of inferring the consequences of changing the system. Our work captures the effects of international investment agreements on FDI inflows specifically into India. We construct an empirical model drawing on the Gravity Model, and estimate parameters using generalised method of moments. The results show that while the individual signing of bilateral investment treaties does not influence the inflow of FDI, the effect of the cumulative bilateral investment treaties signed is statistically very significant—suggesting that the spill over effect of signing a series of bilateral investment treaties are important, signalling a regime of overall protection to investors. The importance of institutional variables in influencing FDI tells us that overall participation in a system governed by international investor agreements influenced the inflow of FDI positively and therefore recent policy changes should be viewed with caution.
JEL Codes: F21, F23, F550, F63, K33, O19, C22, C29
Africa continues to face several challenges that make its share of global foreign direct investment (FDI) to be infinitesimal. These include the prevalence of fragmented investment policies, information asymmetry and high sovereign risk. Bilateral investment treaties (BITs) can help overcome some of these encumbrances by signalling the host country's willingness to protect FDIs. This study hypothesizes that BITs can play an augmentation role and investigates their impact on FDI attraction using data across 48 African countries from 2000 to 2018. In contrast to the previous theoretical and most empirical literature, results based on the two-step systems generalized method of moments (GMM) show that ratified BITs do not perform a significant role in FDI attraction. Nonetheless, the additional analyses allowed us to make some rather non-trivial conclusions about the possible effects of BITs concluded with France on FDI. The study recommends that countries should participate in some BITs, although governments need to be cautious when tying their hands with BITs because of susceptibility to damaging litigations that sometimes follow, irrespective of the less than commensurate benefits.
Institutional factors are a critical driving force for the rapid growth of outward foreign direct investment (FDI) in developing countries. This article attempts to explain how developing countries can take advantage of bilateral investment treaties (BITs) to reduce investment uncertainties caused by informal institutional distance and help domestic companies invest abroad. The results confirm that the cultural difference between China and a host country is negatively associated with the likelihood of FDI entry into the host country. BITs function as a substitute for the host country’s institutional environment by reducing investment uncertainties caused by cultural distance. Moreover, state-owned enterprises are less responsive to BITs in host countries than private enterprises, suggesting that private firms rely more on BITs to reduce their investment risks abroad.
Policy makers in the Asia Economic Community (AEC) engaged in the integration of the countries in the region have so far focused their attention on measures affecting commodity markets. Integration of investment activities should follow in the future. To achieve integration, the policy makers will have to harmonize investment rules. This paper discusses some of the major theoretical and empirical issues of investment governance. The theory is quite clear that, in most cases, cooperation and harmonization of investment rules should be beneficial for countries, a conclusion that is strongly supported by empirical evidence. However, the theory is less clear about specific rules. Though it is still evolving, the theory does provide useful guidance to policy makers in the AEC for negotiating more complete and efficient contracts involving foreign investment.
With the continuous development of globalization, China has been devoted to promoting the degree of openness. The implementation of “the Belt and Road” initiative brings huge development prospects for China’s OFDI. Utilizing a panel data set consisting of a total of 51 countries along the “the Belt and Road” from 2007 to 2016, this paper establishes an empirical model and examines the influencing factors of the location choice on China’s OFDI in “the Belt and Road” countries. This paper collects comprehensive country-level data of 51 countries along “the Belt and Road” with Python. The number of investment enterprises in the host country published by the Open Directory of Record Results of Overseas Investment Enterprises (Institutions) is used as the explanatory variable. This paper conducts Poisson’s regression to study the influencing factors of location choice. According to the empirical results, bilateral trade agreements can help reduce the difficulties that China may face with in investing and facilitate China to access the host country for investment. In addition, Chinese enterprises may invest in countries where the degree of governance is moderate based on the negative impact on China’s investment in “the Belt and Road” countries. Also, China may invest in countries where the natural resources are poor considering the degree of governance even though natural resources have a positive effect on investment. Furthermore, the level of infrastructure construction in the host country has a positive effect on China’s direct investment in countries along “the Belt and Road”. Besides, good political environment can attract Chinese enterprises to invest in countries along “the Belt and Road”.
Abstract One of the most notorious features of the trend toward globalization in recent times has been the increased importance of foreign direct investment around the world. In this paper, we study the determinants of location of FDI, using an OECD dataset on bilateral FDI stocks between 18 source countries and 58 host countries, in the context of a gravity model. We place special emphasis on the role played by institutionalquality on FDI location. We find that the quality of institutions have positive effects on FDI. The impact of institutionalvariables is statisticallysignificant, and economically very important: using our summary variable from Kaufmann et al (1999), an improvement of one standard deviation in institutionalquality results in increases in FDI stocks of nearly 130 percent. JEL Codes: F23, F15
The effects of bilateral tax treaties on FDI activity have been unexplored, despite significant ongoing activities by countries to negotiate and ratify these treaties. This paper estimates the impact of bilateral tax treaties using both U.S. inbound and outbound FDI over the period 1980–1999. Robust to a wide variety of alternative specifications, we find little evidence that bilateral tax treaties increase FDI activity, contrary to OECD-stated goals for such treaties. Copyright Kluwer Academic Publishers 2004
This Article analyzes the role of Bilateral Investment Treaties (BITs) in promoting the twin goals of liberalization and development. The Author discusses the extent to which BITs contribute to the creation of a liberal investment regime and the place of BITs in economic development. Though liberalization may not be essential to economic development, states seeking to develop economically may have little alternative as a practical matter other than to embrace the kinds of policies that a BIT requires. The article then examines the question of whether such policies should be codified in a BIT. The Author concludes that the stabilization promised by the BIT is at the very core of genuine liberalization. Developing states that resist long-term commitments to liberalization such as those embodied in the BITs may find that they are not on a liberal path at all.
We exploit differences in European mortality rates to estimate the effect of institutions on economic performance. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions. These institutions persisted to the present. Exploiting differences in European mortality rates as an instrument for current institutions, we estimate large effects of institutions on income per capita. Once the effect of institutions is controlled for, countries in Africa or those closer to the equator do not have lower incomes. (JEL O11, P16, P51).
This paper studies the impact of regional integration agreements (RIAs) on the location of foreign direct investment (FDI), using data on bilateral outward FDI stocks from the OECD International Direct Investment Statistics. The dataset covers FDI from 20 source countries, all of them from the OECD, to 60 host countries, from 1982 through 1999. Using panel data analysis with country-pair fixed effects, we find that common membership in an RIA with a source country increases FDI from that source by around 27 percent. Countries that are more open, and whose factor proportions differ more from those in the source country are likely to benefit more, as they tend to receive FDI of the vertical variety, which responds more favorably to integration. We also find that the increase in the size of the market associated with regional integration initiatives contributes to attract more FDI to the RIA as a whole. However, only the countries in the RIA that offer a more attractive overall environment for FDI are likely to be winners in this game. Finally, we also find evidence of a small FDI diversion effect. Our results suggest that regional integration, on average, contributes to attracting FDI, but the benefits are unlikely to be distributed evenly.
The impact of property rights on economic growth is examined using indicators provided by country risk evaluators to potential foreign investors. Indicators include evaluations of contract enforceability and risk of expropriation. Using these variables, property rights are found to have a greater impact on investment and growth than has previously been found for proxies such as the Gastil indices of liberties, and frequencies of revolutions, coups and political assassinations. Rates of convergence to U.S.-level incomes increase notably when these property rights variables are included in growth regressions. These results are robust to the inclusion of measures of factor accumulation and of economic policy.
Countries with better institutions and countries that trade more grow faster. Countries with better institutions also tend to trade more. These three stylized facts have been documented extensively. Here we investigate the partial effects of institutions and trade on growth. We argue that cross-country regressions of the log-level of per capita GDP on instrumented measures of trade and institutional quality are uninformative about the relative importance of trade and institutions in the long run, because of the very high correlation between the latter two variables. In contrast, regressions of changes in decadal growth rates on instrumented changes in trade and changes in institutional quality provide evidence of a significant effect of trade on growth, with a smaller role for improvements in institutions. These results are suggestive of an important joint role for both trade and institutions in the very long run, but a relatively larger role for trade over shorter horizons.
This paper addresses the question why investment rates differ so markedly across countries. In the paper a model is laid out explaining why governments in unstable and polarized societies may not have sufficient incentives to undertake legal reform so as to fully protect property rights, and how this may hold back private investment. The model yields testable predictions regarding the link from political instability to the quality of property rights, as well as the link from property rights to investment. These predictions hold up when confronted with cross-country data for around 100 countries. In particular, once I control for the quality of property rights, the different measures of political instability and polarization employed have no direct effect on private investment. Thus, a possible link between political instability and investment is identified. Extensive sensitivity analyses show that the empirical results are robust to an ample of prospective statistical problems.
We estimate the respective contributions of institutions, geography, and trade in determining income levels around the world, using recently developed instrumental variables for institutions and trade. Our results indicate that the quality of institutions "trumps" everything else. Once institutions are controlled for, conventional measures of geography have at best weak direct effects on incomes, although they have a strong indirect effect by influencing the quality of institutions. Similarly, once institutions are controlled for, trade is almost always insignificant, and often enters the income equation with the "wrong" (i.e., negative) sign. We relate our results to recent literature, and where differences exist, trace their origins to choices on samples, specification, and instrumentation.
A serious analysis of Bilateral Investment Treaties (BITs) and their implications for both investment levels and the distribution of the gains from investment is timely. BITs have become the dominant international vehicle through which investment is regulated.
We exploit differences in European mortality rates to estimate the effect of institutions on economic performance. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions. These institutions persisted to the present. Exploiting differences in European mortality rates as an instrument for current institutions, we estimate large effects of institutions on income per capita. Once the effect of institutions is controlled for, countries in Africa or those closer to the equator do not have lower incomes.
NYU Law Review forthcoming
- Vicki Been
Been, Vicki. (2003). NYU Law Review forthcoming.
The Effects of Bilateral Tax Treaties on U.S. FDI Activity
- B Blonigen
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ARB(AF)/97/2, Robert Azinian, Kenneth Davitian and Ellen Baca v. The United Mexican States, Award
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Azinian, Kenneth Davitian and Ellen Baca v. The United Mexican States, Award,
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ARB(AF)/99/2, Mondev International Lt. v. United States of America, Award
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Trading Democracy" for PBS
- Bill Moyers
Moyers, Bill (2002). "Trading Democracy" for PBS, Feb. 5, 2002.
Investment Compact Regional Roundtable on Bilateral Investment Treaties for the Protection and Promotion of Foreign Investment in South East Europe
- Oecd
OECD. 2001. "Investment Compact Regional Roundtable on Bilateral Investment Treaties
for the Protection and Promotion of Foreign Investment in South East Europe",
Croatia. 28-29 May.